Developer seeks common ground between investors, tenants

By Carolyn Said, San Francisco Chronicle
Andrew Jeffery is well aware that landlords, developers and real estate investors are pariahs in some circles in San Francisco.
He is all three.
“You are demonized for a variety of reasons — some warranted, some unwarranted,”
he said, standing in a Shotwell Street apartment stripped down to the bare framing as construction workers laid copper pipes under the subfloor.
Jeffery, 35, couples an affable manner with a wonkish ability to expound on the minutia of remodeling, property values and economic cycles. He sees himself as a kinder, gentler real estate mogul.
“We try to treat renters the way we would have liked to be treated by all the crappy landlords we’ve had through the years,” he said, evoking a sort of Golden Rule of property management.
Still, the hardest part of the job is dealing with tenants — a fraught issue in a city where divisions between landlords and renters can ignite open warfare.
Many new owners approach a building seeking to get rid of all the renters, either through the carrot of a buyout or the stick of eviction. This being capitalism, Cirios, the firm that Jeffery started in 2008 with friends from his kindergarten days, also prefers empty units. They can be remodeled and rented for more money — a lot more.
Cirios' four partners sunk most of their net worths into the company. They make five-figure salaries — “shockingly low for San Francisco standards; lower than what many entry-level college kids get,” saidJeffery, who lives with his wife in “a tiny little shoebox of a home” on Potrero Hill. They’re rushing to add a second bathroom before their first child arrives in December.
The company finances buildings with a combination of outside investors and bank loans. It often focuses on what Jeffery calls “forgotten” properties — once-neglected San Francisco buildings. Cirios owns 150 units in 15 properties, more than half of them in the Mission, including the 10-unit complex at 1015 Shotwell it bought in May 2013 for $1.8 million.
His team redid the crumbling foundation, reclad the building with stucco, installed new windows and upped the curb appeal with new tile. They gutted three vacant units down to the studs and reconfigured them with new layouts, stainless steel appliances, quartz counters and new bathroom tile.
The company makes moving out voluntary for existing tenants, Jeffery said.
“We don’t predicate our investments on being able to buy people out; it’s a bonus to us if someone takes a buyout,” Jeffery said. “We don’t strong-arm people; we don’t evict people.”
At the Shotwell property, two long-time tenants took buyouts between $20,000 and $50,000 and another renter had already moved out. The others chose to remain in place even during construction.
But the unregulated practice of buyouts concerns housing activists, who call them stealth evictions. Although Ellis Act evictions — in which landlords jettison tenants to get out of the business of renting; for example, when converting a building to ownership units — receive a lot of attention, buyouts are actually a much more common form of displacement. Reports say San Francisco sees seven times as many buyouts as evictions.
“They’re an end run around rent control,” said Tyler Macmillan, executive director of the Eviction Defense Collaborative, which provides legal aid for low-income San Francisco tenants.
Once a tenant takes cash to vacate a unit, the apartment is free from the city’s strict rules limiting annual rent hikes. At Shotwell, for instance, a unit that previously rented for $1,800 will go for $3,000 after renovations.
“When rents increase so much, it changes dramatically the kind of people who are able to live in a neighborhood,” Macmillan said. “It goes against the grain of preserving a diverse, robust community.”
In October, the San Francisco Board of Supervisors passed legislation to control and track buyouts. The new law, to take effect in March, requires landlords to notify tenants of their legal rights and to report buyouts to the city. Most controversially, it limits condo conversions after buyouts, in the same way they are already limited after no-fault evictions.
“When you look at displacement, which is what we’re trying to prevent, most is happening through buyouts,” said Supervisor David Campos, who wrote the buyout legislation. “Every time (a buyout) happens, the cost of our housing goes up.”
Jeffery sees it differently. A mixture of dynamics, including city housing policy and economic forces, affect housing costs. He adds that as a for-profit company, Cirios has an obligation to generate returns for its investors.
“Every day we make decisions to balance that fiduciary duty to our investors with a moral and social duty to our neighbors and the community in which we live,” he said. “Oftentimes, those duties are at odds and it’s our job to find a middle ground.”
While Jeffery supports an open buyout process and more tenant education, he thinks restricting them could hurt renters as they allow long-time renters to benefit from the run-up in property values. “A rent-controlled apartment is an asset,” he said. “It should absolutely be (the tenants’) right to monetize that asset should they choose to do so.”
“My personal view is that high rents are the symptom, not the cause, of the social strife we see in neighborhoods like the Mission,” he said. “Failed housing policy, a failure of existing residents to embrace changes happening around them — however difficult — and a failure of newcomers to respect the communities into which they are moving all contribute to the toxic environment surrounding the gentrification debate.”